Business

Jan 29, 2014 | 01:54

Fed bond program faces new debate

Jan 29 - Ben Bernanke's final act as chairman of the Federal Reserve was to keep reducing bond buying by $10 billion a month, but that sparked a debate over whether that's wise given the recent turmoil in emerging markets. Conway G. Gittens reports.

TRANSCRIPT +

10 again.
In a unanimous decision, The Federal Reserve keeps swinging the policy knife, trimming its monthly bond buying program by another $10 billion.
Slower than expected job growth in December - not enough to stop Ben Bernanke from staying the course in his final meeting as head of the world's most powerful central bank.
As part of its decision, the Fed says "economic activity picked up in recent quarters."
But it's what the Fed did not say that has Hilary Kramer of A&G Capital concerned.
SOUNDBITE: HILARY KRAMER, PRESIDENT/CHIEF INVESTMENT OFFICER, A&G CAPITAL (ENGLISH) SAYING:
"Why didn't the Fed talk about the weather and the impact on the economy? Why did the Fed avoid talking about emerging markets? Turkey? Any potential bank failures in China?"
By leaving things like that out - some believe the Fed is sending a message about the fragility of the tapering program and maybe even the economy.
SOUNDBITE: HILARY KRAMER, PRESIDENT/CHIEF INVESTMENT OFFICER, A&G CAPITAL (ENGLISH) SAYING:
"They could at anytime stop tapering, even though the Fed announcement did say we are going from buying $75 billion a month of mortgage backed securities and treasuries to $65 billion a month, we all know that at any point in time they could very quickly put their finger on the button and stop this whole process and that would signal that we are going backwards, and that we are going into some kind of economic tailspin, and if that happens that is very dangerous for the markets."
But others take the other side of the argument; by keeping up with its plan to slow bond purchases in the current environment, the Fed could be responsible for a further tailspin in emerging markets, which could create headaches on Wall Street.
In the meantime, the Fed continues to say it will keep interest rates near zero well beyond the time the U.S. jobless rate falls below 6.5 percent.
That reassurance, however, may be less significant between now and the March meeting if problems in emerging markets spread to the U.S.

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